European Study: Employee Referral Programs Are More Effective than Other Recruiting Sources

GooodJob is pleased to present an exclusive report by Mona Berberich on the findings of her recent in-depth research, “Employee Referral Programs – A Comprehensive Study”.

Employee Referral Programs are THE answer to talent shortage and demographic changes in the recruiting landscape – this is confirmed by a recent study that reveals unprecedented data of 145 European companies of different sizes and industries. Investing in an Employee Referral Program and the right technology to support it has become more crucial than ever.

Here Are the Hard Facts

– Compared to other recruiting sources, the Employee Referral Program presents a success rate of 3 to 7, meaning that out of 7 referrals, 3 new employees are successfully hired. This is an unbelievable success rate that catapults the Referral Program right to the top of recruiting instruments.

– The cost-per-hire of an Employee Referral Program, here defined as the overall annual cost of the program (including all associated maintenance and material fees, such as paid bonuses, non-cash benefits and labor costs) divided by the number of hires per year, amount to an average of 2400 Euro per person hired. Furthermore, 73% of the companies which participated in the study claim that the cost-per-hire within their Employee Referral Programs is significantly lower than the costs associated with their other recruitment sources. In addition, non-cash benefits open up through and after the complete hiring process for the newly hired employee, as do the positive effects for the business and the boost of the employer brand.

– When it comes to overall importance of the Referral Program within the internal recruiting process, 43% of companies surveyed describe their Employee Referral Program as an “important instrument” within their recruiting process. Moreover, more than 30% of the participating companies plan to invest substantially in their Employee Referral Program in the future.

– That Employee Referral Programs are an integral part of the recruiting process is proven by 84% of the Human Resource Managers who predict that Referral Programs will play an important role in the future.

– Many companies are already on the right track: More than 53% of the businesses surveyed already have an established Referral Program in use, and 36% plan to create one within the next 12 months.

Best Practices

The study has revealed the most common referral practices, including:

- A close majority of the companies (46%) open participation of the program to all employees. In all surveyed companies participation is optional.

- 70% of the companies use their Referral Program to fill all open positions in the company. 30% of the firms accept referrals only for certain positions, suggesting the special use of the program to fill key or bottleneck positions.

- 94% of the organizations offer an incentive for the successful referral. It is characterized as a monetary bonus in 88% of the cases. However, there is no limit to extravagancy of the bonuses – vacations, cars, iPads, etc. Keep in mind that the more extravagant an incentive, the more publicity it is likely to get. The value of the incentive varies. In 43% of the companies, the value of the bonus depends on the strategic importance of the position that has to be filled. The value of the bonus after a successfal referrall of a university graduate with work experience is between 250 and 6,000 Euro; the average bonus is 1476 Euro.

- In addition, the study discovered that 21% of the participating companies have already developed a unique technology wherein referrals can be submitted and tracked, a feature which has been identified as decisive for the success of the employee referral program.

Conclusion

For those and other common referral practices be sure to check out “Employee Referral Programs – A Comprehensive Study”, available on Amazon.com. The study is an attempt to better understand the nature of Employee Referral Practices and explores topics such as organizational form, scopes for design and success rates of existing programs.

To conclude, it must be mentioned that when it comes to the design of Employee Referral Programs the sky is the limit! Depending on how your company can best use the program towards their overall goals of recruiting, the right approach can be developed.

About the Author

Mona Berberich is a Graduate Student (MSc) who has been awarded with excellent academic accomplishments. Her interests lie in organizational management, change and leadership which she is able to explore by majoring in Human Resources, International Organizations and Strategy. Mona Berberich is an elected member of the City Council of Villingen-Schwenningen, Germany, where she also serves as the youngest Board Member of two city-owned companies. In 2011, she conducted and published a national-wide study on “Employee Referral Programs” in Germany, whose in-depth research findings serve as the basis of this blog post. You can contact Mona on LinkedIn.